SMARTPHONES: Xiaomi Eyes IPO, Gets Setback in Europe

Bottom line: Xiaomi's growing comeback is
giving it confidence to launch an IPO plan, as its loss of a
trademark case in Europe highlights renewed obstacles it will face
in its global expansion.

Xiaomi eyes Hong Kong IPO

Comeback kid smartphone maker Xiaomi is in a couple of headlines as we
reach the middle of the week, including one that highlights its
return to growth and another that shows the obstacles it will face
as it continues with its global expansion. The first headline has
media reporting that Xiaomi is planning an IPO as early as next
year, as its sagging valuation finally returns to a growth track.
The second has the company suffering a setback in Europe related to
a trademark dispute with industry colossus Apple (Nasdaq: AAPL), highlighting the perils
it is likely to face as its global expansion moves into more
developed western markets.

It's still a bit early to say whether Xiaomi's comeback story has
legs, though growing signals are certainly pointing in that
direction. I know at least one person who is a Xiaomi fan and goes
out of his way to buy their phones, which means that at least some
people are coming back to the brand. That's a shift from a couple
of years ago, when the company's legions of early fans abandoned
the brand after it lost its early trendy image and became more
known for product problems and other glitches.

All that said, let's jump into the latest headlines that say the
company has hired investment banks to explore the possibility of an
IPO as early as the second half of next year. (English article) The story is coming from a highly
reputable source, US-based publication The Information, which means
it's probably true. What's more, Xiaomi is taking the unusual step
of simply saying "no comment", rather than issuing the knee-jerk
denial we often see from Chinese firms in such instances, even when
the news is true.

There's not much detail in the report beyond word that Xiaomi is
exploring the IPO, which would most likely come in Hong Kong. The
timetable is significantly expedited over what CEO Lei Jun said
just last year, when he remarked that the company's complexity
would require lengthy communication with investors that might delay
an IPO until around 2025.

The key change since Lei's remarks last year appears to be Xiaomi's
comeback, which has seen the company post strong growth in the last
two or three quarters, reversing a couple of very weak years. That
return to growth apparently has investors getting more excited, and
some reports are saying that recent transactions have valued Xiaomi
at $50 billion.

That figure, if true, would mark an important shift, since Xiaomi
was valued at around $45 billion just before it started into its
slide around two years ago. So a return to growth in valuation
would mark a major milestone that might make the company confident
about more fund-raising. I personally suspect the $50 billion
valuation was probably achieved through a bit of manipulation,
since it was probably based on a small trade of the company's
unlisted shares. But still, the story of Xiaomi's comeback does
appear to be gaining steam.

Tussling with Apple

Some might argue that the second piece of news also highlights
Xiaomi's growing prowess on the world stage, since Apple might not
take notice of a such a small fry otherwise. That news has the EU
General Court in Luxembourg ruling that the name of Xiaomi's Mi Pad
tablet PC sounds too similar to Apple's iPad, and thus Xiaomi will
need to find another name if it wants to sell the product in the
EU. (English article)

This particular development comes just a month after Xiaomi made
its official Western Europe debut with a launch in Spain, where it
rolled out some of its smartphone models. (English article) This particular ruling means that Mi
Pads won't be coming to Spain anytime soon, at least not under that
name, nor will they come to other EU markets.

This isn't a huge setback, as Xiaomi can easily find another name,
though it may run into branding issues if it continues to sell them
under the current Mi Pad name in other markets. All in all, I would
chalk this up as a learning experience, and suspect Xiaomi will do
more trademark research for its future global launches to avoid
this kind of conflict. The bigger danger could come from patent
lawsuits, especially from Apple. Though here it's also worth
pointing out that Xiaomi has found a potent partner that could help
it fight off such challenges in software
titan Microsoft (Nasdaq: MSFT). (previous post)